How climate change is pushing up the cost of your home insurance
Britain’s weather is becoming more extreme – and homeowners are paying the price.
It costs over £3,000 on average to repair storm damage, while the typical flood repair bill runs to £4,500, according to comparison website Compare the Market.
Residents in areas at high risk from flooding or subsidence have seen their insurance premiums shoot up. Some have been told their policies will no longer cover them for these sorts of claims.
But homeowners directly affected by wild weather are not the only ones bearing the brunt.
Insurance experts are warning that whether you live on a floodplain in Norfolk or the top of a hill in Surrey, climate change is increasing the cost of insuring your home.
John Neal, chief executive of insurance marketplace Lloyd’s of London, says that insurance firms in Britain are spreading the spiralling cost of extreme weather claims across all their home cover customers.
“With the impact of climate change, insurers face an increased cost of natural catastrophe-related disasters,” he says. “If the cost goes up, then premiums will go up.”
Highest subsidence bill since 2006
Mr Neal expects premiums to rise further still as the “huge” sums paid out by insurers for extreme weather events increase “exponentially”.
He says: “Insured natural catastrophe events cost the industry $135bn a year globally – twice what it was a decade ago. I think this number could double again in the next 10 years.”
Premiums in Britain are already soaring. The average price of home and contents insurance rose to £188 in July, a 27.9pc increase from July last year when it stood at £147, according to Compare the Market. By December 2023, the average policy is on course to cost £103 more than in 2021.
Insurers blame the price rise in part on a torrent of expensive claims as the UK’s weather becomes more extreme and unpredictable.
Climate change has made devastating weather events, such as Storm Desmond in 2015, 59pc more likely, according to research conducted by Oxford University. The Met Office also reported the hottest June on record this year, followed by the sixth-wettest July.
Dry summers and wet winters have led to more insurance claims for subsidence, when the ground beneath a property crumbles, causing it to slant and brickwork to crack and collapse.
Halifax Home Insurance reported three times the typical monthly average of subsidence claims after the heatwave in August and September last year, and 45pc more subsidence claims in 2022 as a whole than in the previous year.
The Association of British Insurers (ABI) says insurance firms expected to pay out £219m for subsidence claims made last year, the highest bill since 2006 when parts of the UK also experienced a drought.
The damage caused by storms Ciara, Dennis and Jorge in February 2020 and Dudley, Eunice and Franklin in 2022 cost Britain’s insurance industry over £1bn, according to the ABI.
But Mr Neal says that Britain’s status as a “fluvial nation” makes flooding the country’s biggest exposure. “Most of our conurbations are by water, either by river or by sea. If you’re in an area much more exposed to flooding you’re likely to be paying a greater premium… but everyone is paying a bit.”
Around 1.2m homes are at high or medium risk of sea, river or surface water flooding, according to the Environment Agency. The figure is set to rise significantly with heavier winter rainfalls and stronger river flows predicted by 2050.
Some households could be refused premiums altogether
Households could find themselves facing unaffordable premiums or be refused policies altogether if temperatures keep rising. The Bank of England said last year that in a worst-case climate change scenario, around 7pc of UK households could be left underinsured or uninsured by the 2050s.
To claw back the cost of claims, insurers are raising the price of policies. Matthew Harwood, home insurance expert at Confused.com, says that extreme weather is pushing up prices across the board, no matter where you live.
“It’s having an impact across everyone. As the weather becomes more extreme due to climate change, more people will make a claim, which will result in increased premiums.”
He adds that because of the cost-of-living crisis more people are claiming for small sums after storms or floods when they would not have bothered doing so before. “Repairs and replacements to properties are costing insurers more,” he says.
Liz Hunter, of Money Expert, says extreme weather events are having a “significant impact” on insurance premiums and the excess that consumers have to pay when making a claim.
“The more severe the weather, the more significant the damage to the home too, which will result in higher payouts from home insurers.”
She adds that because insurance companies invest the premiums they collect to generate income, they may need to dip into these investments to cover higher losses. “If investment returns are lower due to economic disruptions caused by the extreme weather, insurance companies may need to compensate by increasing premiums.”
“We’re in a riskier world, and weather is costing us more”
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The joint Government and industry reinsurance scheme Flood Re has been adding to the price of home insurance since it was set up in 2016.
The initiative was designed to ensure that homeowners who live in areas at high risk from flooding that insurers won’t cover can still get insurance.
It requires all firms offering home insurance to pay into a communal £135m pot. Insurers can then use this fund to pay out for any claims they receive for flood damage, thereby pooling their risk.
But it also means customers unaffected by flooding often foot the bill. Helen Phipps, commercial director at Comparethemarket, says: “Some insurers pass on the costs of paying into the Flood Re levy to their customers, spreading the amount across many hundreds of thousands of policies.”
Flood Re adds around £4 on average to each policyholder’s home insurance premium, Telegraph analysis reveals. The scheme is due to be in place until 2039.
Extreme weather is also making commercial property insurance more expensive, which is having a knock-on effect on prices in all areas of the economy, according to Mr Neal.
“If the cost of insurance for a business rises, then this will feed into the cost of what they produce,” he says. “We’re in a riskier world, and weather is costing us more.”
